If the World Price of Tradables Remains Unchanged While the Official

question 29

Multiple Choice

If the world price of tradables remains unchanged while the official exchange rate rises by 20 percent and domestic prices for nontradables rise by 50 percent,then the real exchange rate (as defined in the Australian model) :

• A) rises by 30 percent.
• B) falls by 30 percent.
• C) falls by 20 percent.
• D) rises by 70 percent.

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